India could see its fastest growth rate in a year, driven by increased consumption

  • India could notch its fastest growth rate in almost a year when it reveals its growth figures for the October-December quarter on Wednesday.
  • Economists polled by Reuters predicted that India's GDP grew 6.9 percent on-year for the quarter.
  • Market watchers said the December quarter growth was likely driven by increased consumption and higher exports.
  • The Reuters poll also predicted that India's gross value-added — another metric used to measure growth — rose 6.6 percent year on year for the December quarter.
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India could show further signs of economic recovery when it reveals its growth figures for the October to December quarter on Wednesday.

Economists polled by Reuters predicted that India's GDP grew 6.9 percent year on year for the three months ended December.

If that number is realized, the country would notch its fastest growth rate for the calendar year 2017, following the 6.3 percent achieved in the July to September quarter. India's fiscal year runs from April to March.

Market watchers said that the December quarter growth was likely driven by increased consumption and higher exports. The uptick in inflation had little impact on household spending for the quarter while growth in the agriculture sector likely slowed, they said.

"From an expenditure perspective, consumption and external demand picked up further while private capex remained sluggish," economists at Morgan Stanley wrote in a recent note. The investment bank also predicted that GDP grew by 7 percent on-year for the December quarter, a touch above the market consensus.

They said that growth in the industry and services sector likely accelerated while the agriculture sector slowed. Meanwhile, corporate revenue trends likely improved further in the quarter, the economists added.

The Reuters poll also predicted that India's gross value-added — another metric used to measure growth — rose 6.6 percent year on year for the December quarter.

In previous quarters, India's growth had slowed as the economy adjusted to two major currency and tax reforms the government introduced in recent years.

Economists at Singapore's DBS bank said in a note that a rebound in growth was likely helped by a jump in industrial production, and factory activity recovered from a lull that followed India's introduction of a goods and services tax last year.

In December, India's factory activity expanded at the fastest pace in five years on the back of rising output and new orders. Meanwhile, industrial output for the month rose 7.1 percent on-year, beating a market forecast of 6.2 percent.

"Net external trade is expected to benefit from firmer service sector receipts, even if the merchandise deficit is widened on a bigger oil bill," the DBS economists added.

In recent months, India's economic conditions have become less favorable due to rising oil prices — crude petroleum is one of India's largest imports.

Analysts at Mizuho Bank said in a note that higher oil prices in 2018, along with a wider trade deficit and inflation pressure, could see India face headwinds to growth.

"What this means is that straight-line projections of India's growth restoration to "Modi magic" rates of 8-8.5 percent will be misguided," the analysts said.

"Instead, a fairly bumpy ride in the 7-8 percent growth range for 2018 could be due as high oil prices, lingering banking woes and political distractions appear," they added.

Earlier this month, Indian Finance Minister Arun Jaitley said he expected GDP to top 8 percent in the near future as he outlined the government's plans to stimulate economic growth.